Nearly half (47 per cent) of schemes reported a surplus position in tranche 17, up from 32 per cent in tranche 14, research from The Pensions Regulator (TPR) has revealed.

TPR's latest DB funding analysis showed that the average funding level was 97 per cent in tranche 17, compared to 92 per cent in tranche 14, representing a 5 percentage point increase between funding cycles.

TPR said that funding levels have improved in the current tranche compared to tranche 14 across all scheme size categories.

According to the update, the average ratio of assets to technical provisions (TPs) for schemes in tranche 17 was 97 per cent, while the largest median asset to TP funding ratios were seen in the largest schemes (by membership).

There was also a fall in the average recovery plan length for schemes in deficit, as the average recovery plan for tranche 17 was 4.7 years, while the average recovery plan length in tranche 14 was 6.2 years.

TPR also found that, within the subset of schemes in deficit in both tranches, 83 per cent reported reductions in their recovery plan length between tranche 14 and tranche 17.

The proportion of schemes requiring a recovery plan also fell, as 53 per cent of schemes in tranche 17 were required to submit a recovery plan, compared to 67 per cent in tranche 14.

Despite the improvements, Broadstone chief actuary, David Hamilton, warned that the time lag since the valuation dates being reported on in this latest analysis means that it offers "limited insight" into the state of the DB market.

“This is especially true on this occasion, as the figures all pre-date the notorious mini-budget two years ago," he pointed out.

Indeed, TPR's analysis was based on tranche 17 schemes, with effective valuation dates from 22 September 2021 to and inclusive of 21 September 2022.

As the effective dates for the bulk of these valuations are late 2021 and early 2022, TPR acknowledged that the results may not have been impacted by the interest rate rises and volatility in investment markets that occurred over the second half of 2022.

However, Hamilton pointed out that this is the same tranche of schemes that are about to embark onto the first valuations under the new funding regime.

“Given the material funding improvements that many schemes saw over the past three years following the rise in gilt yields, a very large number of cases should be in strong financial health," he said.

"This lays a solid foundation for the ‘next step’ (or in many cases endgame) discussions that are now required."

And after two valuation cycles showing consistent improvements across the board for this group of schemes, Hamilton said that it will be interesting to see to what extent the raising of the bar and revised focus within the new regime affects the figures reported next time round.

“We will also see if recovery plan end dates are impacted by the new fast-track tests, which will inevitably be used by some as an accepted starting point, notwithstanding TPR’s emphasis on affordability," he added.

“Fundamentally though, we expect the new regime may take a few years to settle in and it may be hard to read too much into initial figures.

“In the meantime, the discussions around longer-term strategy combined with generally strong funding levels means that the intense activity in the pension risk transfer market is likely to continue.”

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